Bumps in the road continue to impede manufacturers’ journey to growth

MANUFACTURING output continued to recover in the last quarter, with export volumes growing at their strongest for two and half years.

The latest quarterly CBI Industrial Trends Survey, which took in responses from 459 manufacturers, revealed that competitiveness in EU markets rose at the fastest pace since the surveys began in 2000, with competitiveness outside the bloc also improving at the quickest rate since 2009.

Domestic demand grew modestly, while export orders rose for the first time in over a year. The outlook for demand over the next three months is generally positive, with export orders expected to rise further, along with more modest growth in domestic orders.

However, concerns persist about the availability of skilled labour, with almost a quarter of respondents saying that skilled labour availability could limit output over the next few months.

Despite the improvement in output, optimism levels declined again during the quarter following last quarter’s sharp decline.

Falling employment levels also contribute to the lack of confidence.

On a more positive note, improving investment intentions helped offset the decline seen over the previous quarter, and investment plans for the year ahead are now firmly above their long-run averages.

Following sterling’s sharp depreciation, unit costs rose at their fastest pace in three years, and are expected to continue growing at above their long-term average over the quarter ahead.

This was accompanied by modest domestic price inflation, as manufacturers sought to pass on some of the cost increase to their customers.

Despite welcome signs of improved export demand and competitiveness, the majority of exporting manufacturing firms said the fall in the pound since June had had a negative impact on their business.

In a supplementary question asked alongside this month’s survey, 47% of manufacturing firms cited sterling’s depreciation as having a negative impact, against 32% citing a positive impact.

Rain Newton-Smith, CBI Chief Economist, said: “Manufacturers’ are optimistic about export prospects and export orders are growing, following the fall in sterling.

“However, the weaker pound is also feeding through to costs, which are rising briskly and may well spill over into higher consumer prices in the months ahead.

“Access to skills clearly remains a high priority, so manufacturers will be looking to the Government to implement a new migration system that meets the needs of business while responding to clearly-stated public concerns. Maintaining a preferential route between the UK and the EU, our largest trading partner, will be important.

“Meanwhile, firms will be seeking further details on a long-term, industrial strategy from the Autumn Statement that combines sectors and places.

“Ultimately, all businesses need greater clarity from the Government on the fundamental issues of skills and barrier-free access to EU markets as soon as possible.”